I think the article only attired the attention of someone from the revenue agency and after that they reviewed the fact and concluded that since he was playing for a living it was a business. The main point here is that a tribunal decision would be very interesting for most of us.

Also for the non-residency. I'm in the process of leaving Canada to not take any chances since I like to live oversea anyway. I consulted a lawyer about it and its more than just severing your ties with the canada. He said to me that you also need a fiscal residence in another country. PM if you want more details. You also need to stop your canadian free medical insurance.

Why would the tribunal decision be interesting?

The law is not complicated. Morden sets out very specific criteria that will be considered. Since it is almost certain that the article quotes your friend in such a way as to make it clear he does this as a business the tribunal would be pretty much a waste of time.

Raven, I have to admit that that sucks for your friend.

I would like to pile on to Henry's original comment. It would be of benefit for all of us if you could track down the newspaper article so that we could see how your friend outed himself.

Basically if he admitted to:

1. Gambling for the purposes of making a living rather then just for entertainment.

2. Special knowledge or skill? Poker and sports wagering is different then house games. Anyone who claims they are a good roulette player is delusional. While both poker and sports handicapping are skills.

3. Being professional about it? Keeping stats and being organized. Travelling on a circuit or for some distance for softer / bigger games. Taking courses or reading books to improve. These are not as critical as #1 and #2 but they are considered.

4. Frequency. If he admitted to playing a lot then while not as bad as #1 it adds a lot to tipping the scale toward you must pay tax.

If he admitted to these things in his interview then it is pretty much a done deal. He'd be reduced to either claiming that the reporter misunderstood or that he lied to the reporter. Then the onus would be on him to prove that he has funds from some other source that explains the quality of life assessment they have done on him.

Well it would be the first judgment about an online poker players about taxes. I think, as most of you that poker is probably taxable on the basis of the interpretation of the tax law, but i would like to see a real decision about it. Also, one of my friend who have consulted a lawyer told me that he had some good arguments about it not to be taxable.

"You also need to stop your canadian free medical insurance. "

I'm not sure if that makes sense. Obviously you shouldn't renew you health card (or you driver's licence or anything that would imply you intend to maintain residency) once you leave but why would anyone? There is no requirement that you actually take any active steps to cancel your provincial health care.

Anyone having questions about residence status can find all the information they need in Interpretation Bulletin IT-221. http://www.cra-arc.gc.ca/E/pub/tp/it...onsolid-e.html

The issue can be argued successfully either way depending on how good the lawyer/accountant is. Because there are a list of several factors used to determine tax eligibility and most cases are not 100% in one way for every factor, an argument comes down to putting the greatest emphasis on those that support your side and minimize the ones that are against you.

The recent court cases against sports bettors that the CRA has lost is mainly due to poor arguments (placing the emphasis on the weaker factors) on their side in my opinion.
The courts have taken the approach that the CRA has to "really" prove that income is taxable before backing them up.
So far the government has used poor reasoning and lost all of the cases but that doesn't mean they won't change their approach and start to win.

That was why I asked about the contents of the article. It is very difficult for CRA to win a case. The exception to that would be if someone decided to go on record either via a blog or in a newspaper / magazine article. In a case like the player has pretty much done all the work for the government and screwed himself.

All the government really has to do is prove that you intend on relying on poker income as your source of support.
If you have no other means of support, you must be in the business of poker.
It can not be recreational or incidental to your lifestyle if it is the only way you get to eat.

That would be true if someone had no other source of income. If someone has a job and plays poker at night and on the weekends then it is much harder to establish that unless their poker income is so much larger then their employment income that a qualify of life issue kicks in.

For people who don't have actual employment then if they don't plan to pay tax on their poker income will simply not file a return. So long as they don't then start a blog or brag to someone who reports them they should just disappear.

The really stupid is a friend of mine who for the last 8 years has claimed less then $200 in income yet files his taxes so he can get his Ontario Tax credit on the $32k in rent he pays. So for what works out to less then $1000 he risks setting off a bunch of red flags. As a vote of confidence in the level of scrutiny tat the CRA there have been no issues to date.

This is an excellent thread. I haven't read all of it, but the firstseveral pages were very informative.

I have a couple of questions, however. And my apologies if it has already been covered:

1) I know that banks have a responsibility to report suspicious activity. Can we find out what banks deem as "suspicious?" Obviously if we suddenly make a 100k transaction, it's going to raise some flags. But what if we cash out $1000 a day for a year. Would banks then deem this pattern of withdraws as suspicious?

2) Is the CRA constantly looking into people who do not report incomes? What do they look for when they're searching for suspects? If you don't report your income for several years, wouldn't the CRA start to wonder how you're making a living? I've read that the chances of you being bothered by the CRA is "next to nil," yet it seems like the CRA is constantly on the prowl for suspicious activity. So what's the deal? Is it that the CRA just heavily rely on banks to report large transactions or are they active in searching out their next victims?

3) If they do "catch" you, what kind of power do they have in looking into your online activity? Can they go into your email, the websites you visit, and even your posts on forums?!?! If they can't, then how can they ever win a case vs. a suspected professional poker player. The poker player can simply say he's been getting really lucky all these years and has not found a reason to find a job. QED. How can the CRA prove that you are organized and skilled etc if you don't keep a blog or brag to the media? Are we safe in online anonymous forums?

So regarding toronto's quote:
What if I say that I'm getting really lucky? How can they prove that I know what I'm doing without going into my computer and looking at my 2+2 posts?

well, CRA interest is 19 % so after a few years it would cost a lot

Banks are looking for money laundering and fraud. They are not really concerned about you reporting your income.

Regardless if you are concerned about this you can either open a bank account outside of Canada or have multiple Canadian accounts at different banks.

I've had some issues with banks in the past but never anything with them reporting income to CRA.

sawseech, if what you're saying is true, and bearing that I do not participate in any of the activities you listed in bold, then I should have nothing to worry about, right?

How can we verify if what you said is true?

Sawseech has the correct test. I'm not sure if I agree 100% with his interpretation of certain elements of the test.

What don't you agree with and how would you interpret them?

Actually reading it over I disagree with quite a bit.

The test has 4 parts. The most important is the what are the the individual's intentions. Does he play poker for entertainment or profit? Obviously since CRA can't extract your thoughts and submit them as evidence this is hard to establish.

If you have employment or some source of income and can justify your lifestyle referencing only that income then CRA has very little hope of proving that you play poker for profit. Of course if you keep a blog, brag to a local newspaper etc then that changes things. Also the non-poker income has to explain your lifestyle. You can't live in the Bridal Path and claim that you are paying for it all with your part-time job at Best Buy.

If you have no other source of income or any other means of sustaining yourself then it is pretty easy for CRA to establish that you play poker for profit and not entertainment.

The second part of the test is the special skill test. Under the ITA windfalls are not taxed as income. As such even if you managed to continually win the lottery you would not be taxed. There is no skill in choosing numbers and filling out a scantron sheet. Poker though is a game of skill. This part of the test is a done deal for CRA

The third and forth element is organization and frequency. The more organized / frequently you play the greater the chance of CRA establishing you play poker as a business. These two elements are not as important as #1. If they can establish #1 then the income is taxable.

CRA though is not very bright. So long as you keep a low profile you should have no issues. I use to push my luck and file with income of a few hundred dollars and then claim my provincial rent credits. CRA never questioned how someone making less than $500 could afford $32,000 a year in rent. That was stupid. The best solution is to simply stop filing your taxes. The ITA does not require filing unless you owe income tax or are specifically requested to file by CRA. This means you don't get any rental credits or GST Rebate cheques but that is chump change for most poker players so not worth poking CRA for.

Wouldn't the CRA then question how someone older than 20 years-old who is not filing taxes is earning a living? Wouldn't they at least poke around in people's bank accounts and see what's going on?

Not filing for taxes is fine. But what if I stop filing taxes and then start making regular withdraws (let's say $1000/day) from party into my bank account? Do you run the risk of having CRA check up on you or the bank ratting you out?

You give the public service way too much credit. The public service is just a make work project for French people. Most are completely incompetent. True CRA is not as bad as HRDC but I still don't see this as a major concern. If they didn't flag my returns when I was claiming my rent I don't see them doing anything if someone just doesn't file.

If for some reason they decide to pursue it they will not look at your bank accounts. They will issue you a notice and require that you file for that year. At this point you might have some issues. I know quite a few people who simply don't file taxes and so far only 1 has been contacted by CRA. Obviously there are some risks in not paying your taxes. If you are cashing out for $1000/day there is no question that this counts as income under the ITA.

Personally I'm not worried myself. I have not filed taxes the last two years and the 6 years before that I filed them with <$500 in income while claiming the $32k in rent. That being said I've also set things up in such a way that should I ever have an issue with CRA I could frustrate their attempt to prove the source of my income is gambling as a business. So I have a back up plan. If you feel uncomfortable with the whole thing then you should simply pay your taxes.

Okay this is something that's been on my mind for a while now, so I'm wondering if I can get answers from some of the smarter people here.

I'm 19 years old and over the last couple of years I've made roughly $300K CAD from online poker. Like most people I thought that online poker was completely untaxable in Canada. Then I saw this thread a while back and got scared that I might qualify as taxable, so me and my Dad went to see a tax lawyer. Long story short he advised me to incorporate, so that's what we did. I'm a little hazy on the details of corporate tax law, but the small business rate is 16%, although this only applies to your first 500K lifetime, and something like 300K in each subsequent year, after which point you're taxable at your personal rate (?). Again I'm not 100% clear on the details. I sent my first installment to Revenue Canada this week.

Was this a smart move on my part? I'm sort of feeling like a sucker, as I haven't heard of anyone else paying taxes on gambling winnings in Canada, or the government ever winning a case against anybody. If my success were to continue over the next couple years and I got up to say $1MM what are the odds of me getting audited? If the government isn't auditing people in their early 20's who mysteriously acquire large sums of money with no employment history who are they auditing? It's possible I'm already on their radar, as I've made several 5 figure transactions to and from banks (from what I here deposits of 10K plus are autoflagged). Also the fact that I've set up the corporation could hurt me in the event that I decide to stop paying and they take me to court over this, as it indicates that I knew poker was a business for me. If I were to get taken to court over this what are the odds of winning a case? Nothing in my lifestyle would draw particular attention I don't think, meaning I haven't purchased a house or a car, although I have invested a large chunk of it. Anyways I'm interested to here any thoughts/advice regarding this situation and what I should do.

I don't really understand why you Incorporated. By incorporating you did get to pay tax at a lower rate. Unfortunately all your winnings are no longer yours. They now belong to the corporation. Now since you have complete control of the corporation you can control the funds. Any funds you direct to your personal use though will be consider income again and you'll have to pay income tax on them again. So you are actually probably worse off.

Corporations are people as far as the law is concerned. So you no longer play poker. KingGordy Inc plays poker. KingGordy and KingGordy Inc are separate legal entities. KingGordy Inc pays tax at the corporate rate but then you'll still have to pay income tax. Not really exactly the same but think of it as if you are a trader at a investment bank. You make money trading but all that money belongs to the bank. The bank pays corporate taxes on the profit but then you as a person pay income tax on what the bank transfers to you as compensation for working there. The major difference is that in your case the same physical person is actually two legal entities.

You said that a large portion of your money has been re-invested. The investments need to be held in an account that belongs to the corporation. If they are in your personal trading account then you should have paid income tax on that amount the year the funds were transfered from the corporation to you.

As a corporation, you would pay lower taxes since the first 300K (the 500K you mention is the capital gains exemption for small businesess...this is something totally irrelevant in your situation) in income per year qualifies for the small business rate of I believe 16%. This would compare to 30%+ personal income tax rate. Having said that, your income would now be within your corporation and you would have to draw it out...not all of it, but whatever you need to maintain your lifestyle. You can do this via a salary or through dividends. Salary is good because you can then contribute to your RRSP as this would create RRSP room. If you file as an individual than all your income would be taxed at the highest marginal tax rate in Canada. Also your 19 so you probably don't need much more than 50K a year to live on so it makes no sense to be taxed at the highest bracket on all your income. This is why it would be better to incorporate for you. You can take out what you need (and pay personal tax on that) and keep the rest in your corporation which would be taxed at the low rate.

As for any investments you hold, you can transfer them to your company tax free via a Section 85 Rollover....the investment income would also qualify for the lower business rate.

You should see another accountant for a second opinion and if their info and advice jive, then you can probably be comfortable with what they are saying. You should see a Chartered Accountant versus a CGA or CMA in my opinion. Get a referral from the provincial accounting institute or ask a lawyer if you know one...they will know a good tax accountant if they are a decent lawyer. They will not be cheap - likely in the $250 per hour range but there is no question that you have to pay taxes on this income as it meets the definitions of business income.

Thanks for the reply

Actually what happened is we made the incorporation date May 1, 2007, so that is the cutoff for when the income switches from personal to corporate. Our argument for using that date is that's when the school year ended so that's when I began playing more seriously and treating as a business, and anything before that was windfall, so I have about $200K CAD personal that I'm not paying taxes on. Obviously this is somewhat of a BS explanation as I knew I was profitable at poker before then and had similar playing habits before this date, however we had to choose a date so we may as well take an aggresive stance, since it's all sort of shades of grey anyways.

With regards to the money being owned by the corporation instead of by me I understand that (sort of), but what are the limitations to having money tied up in a corporate entity as opposed to personal? For example I've been told you can buy property within the corporation (although I'll probably buy my first house with personal money since capital gains on primary residence is tax free). What can and can't you do with corporate money?

As for the personal money thing I plan on maxing out the amount I pay myself in salary up to the point where it starts being taxed ($24K? or something like that). Also what about paying out bonuses and dividends?

Thanks

Also ty celiboy for your response. I saw a tax lawyer who I thought was pretty good, but a second opinion probably is a good idea.

I'm interested that question too. Can you use corporate money to buy anything you want? If so, then incorporating wouldn't be such a bad idea because all you gotta do is pay 16% tax, pay yourself 24k tax free for spending money, and for all major purchases just use your corporate money.

No. Well, I suppose you could, but you certainly can't claim it as a business expense. And when CRA starts looking into things they are going to be pretty sweeping in their determination that all of these purchases equate to income to you personally.

As for why you would want to incorporate, there are a couple of immediate reasons. First, if you're looking to build your bankroll, that money stays within the corporation, and any accumulation is taxed at the corporate rate. Second, anyone with a family or looking to have one has the option to develop family trusts (I'm pretty sure this is available -- they were never my specialty). A family trust allows the corporation to pay profits to a spouse or children, to spread out the income, maximizing both the basic personal amounts and the amount that's taxed at the lowest personal tax bracket. Third, you don't need to pay yourself all of your winnings as personal income. You can pay a reasonable salary according to your needs, then invest the excess through the corporation. This will allow you the best possible control over when you receive personal income, to maximize any tax benefits.

I was never a corporate expert, and my lazy ass hasn't even gotten around to incorporation yet, so I welcome any corrections or expansion.

Edit: I remembered one more thing. Having your business incorporated establishes a fairly clear line between personal income and assets, and business income and assets. Anyone who is married or separated and thinks divorce is even a possibility should know that all personal assets are divided equally between spouses, but business assets are generally excepted from division. While technically any assets, such as your bankroll, should be viewed as business assets even if you are an unincorporated sole proprietorship, convincing a judge that the 100K in your personal bank account is just for playing poker may be difficult.